What
have we learned so far?When you have compensatory
damages of $1 million and punitive damages of $5 million and no process to
review those damages, that’s no good and it violates due process.We learn that from Honda.

From
BMW, we got the substantive due
process part of the equation.Can a fine
simply be too big because it’s just too damn big?In BMW,
a dentist complained about the paint job on his BMW.He was awarded $4,000 compensatory damages
and $4 million punitive damages (damn!).Alabama had a remittitur procedure, and it actually used it
to reduce the punitive damages from $4 million to $2 million.

The
fairness and notice elements of the substantive Due Process Clause limit the
size of verdicts.We get a three part
test: (1) reprehensibility, (2) ratio, and (3) comparables.

Degree
of reprehensibility

In BMW, the conduct wasn’t all that
bad.The damages, as measured by Gore’s compensatory
damages, were not severe.BMW basically
didn’t act all that badly.In
fact, some people think there should not be punitive damages attached to any
purely economic damages.The argument is
that you can always be made whole for the economic loss by compensatory damages.

Ratio
between actual damages and punitive damages

What
is an acceptable ratio between the two types of damages?The Supreme Court has refused to set down any
particular number.How come?It would vary a lot between, for example,
torts and contract breaches.

However,
500 to 1 is at least suspect.500
to 1 is too much.What about 200 to
1?We don’t know.We’re not told.The Court decides a case that’s easy because
it’s at an extreme: it’s clearly over the line.But the Court doesn’t tell us where the line
is.

Comparable
sanctions

The Court
also looks at civil or criminal penalties that might be imposed for similar
conduct.In this case, the punitive
damages were grosslymore than penalties prescribed by statute.

Does
this create a constitutional question in every state court punitive damage
award?

Cooper
Industries v. Leatherman Tool Group, Inc.

This
is a case about trademark infringement of “Swiss Army Knives”.The plaintiff gets $50,000 in actual damages
and $4.5 million punitive damages.This
case gets argued not on Fourteenth Amendment grounds, but on Eighth Amendment “excessive
fine” grounds.

Stevens
says that states must not impose grossly excessive punishments under the Eighth
Amendment.Also, on review, you don’t
assume the trial court got it right.This gives the appellate courts a different way of checking the amount
of damages.Doing it like this, de
novo, will overturn more verdicts than review merely for abuse of
discretion.

State
Farm v. Campbell

This
case was about failing to settle claims within policy limits.The plaintiffs got $1 million in compensatory
damages and $145 million in punitive damages.That’s a hella lot of damages.The Utah Supreme Court reduced the punitive damages award to $25
million.The United States held the award unconstitutional by substantive due
process according to Gore.Although the Utah Supreme Court applied the three-prong Gore
test, the Supreme Court says that the Utah Supreme Court applied the test
wrong.

In
this case, the Supreme Court hints at a number: single-digit punitive
damage multipliers are probably okay, but ten and above will raise the
proverbial eyebrow.

Financing
litigation

Recall
Hatahley.How did the Indian tribe pay its lawyers to
help get back their damages for the horses and burros?This was a lengthy and costly suit!We must assume that the tribe couldn’t pay up
front.They had to find some other way
to do it.They might have used
contingency fees.

What
about the plaintiffs in Honda and BMW?What if Gore was the sole victim of BMW’s repainting?That wouldn’t look so attractive to a lawyer.

There
are all different methods of financing litigation.In practice, this question becomes
increasingly important.How are we going to be paid?

The American Rule v. the English Rule

Under the American Rule, everybody pays their own
lawyer.Under the English Rule, the
loser pays!What incentives do these
rules provide to litigants?

Let’s say Fairman has a frivolous lawsuit.He wants to file a lawsuit in the United States.Would I want to take his case on
contingency?No way, because the case
has no merit.The potential recover is
zero.If I take the cost on contingency,
the client bears no costs at all.The attorney
bears all
the costs.We could try to shift some of the costs by
making Fairman pay hourly.Under either
of these formulations, is there an incentive to file the frivolous lawsuit?No way.

What about under the English Rule?Not only is there no recovery for the plaintiff,
but the plaintiff will also have to pay the costs of the defendant.Which system is more likely to have a deterrent
effect?The marginal case is dropped in
the English system, because it’s not worth the risk of incurring both your own
costs and the defendant’s costs.

Characteristics of the American Rule

·Both sides are undercompensated, insofar as winning
plaintiffs must pay part of their compensation to the lawyer.If the defendant wins and has to pay zero to
the plaintiff, they still have to bear their part of the cost of litigation.

·This system is hospitable to “marginal cases”.

·This system has the problem of creating financing
difficulties for marginal plaintiffs with low potential for recovery.

Say Andy has a $1,000 claim.It’s a simple case that can be done in 20
hours.Say you only have to pay
$100/hour.You can tell Andy that you’d
love to take the case, but that he’ll lose more money than he’ll gain.You’re not going to take the case on
contingency either.This case will not be litigated.

Say Irma owns a store.There’s a manifestly fraudulent slip ‘n’
fall.Irma comes to me and I tell her it
will cost $7,000 to defend the case.On
the other hand, the con artist who isn’t really hurt offers to settle for $1500.The incentive here is to settle, even though
the claim has zero merit.It would be
very costly to defend on principle.

There are some exceptions: WalMart will never
settle slip ‘n’ falls.They will always
go to trial.The reason for this is that
they don’t want to become a “serial defendant” of slip ‘n’ fall cases.

But Irma is a small time, small beans kind of store
owner.She has the incentive to settle.

There
are two more ways to finance litigation in the American system: insurance and
contingency fees.

Insurance

For
example: Baseman sues Fairman for personal injuries and property damage.How would Fairman defend himself when he gets
sued for a car accident?You start out
by calling your insurance company.Why?Because car insurance
usually has coverage for legal representation when you get sued.So who becomes one of the parties in
interest?The insurance company takes an
interest in the outcome of the suit.

Baseman
claimed all kinds of crazy injuries.There were no physical injuries that doctors could find.Baseman sued for policy limits, which was, at
the time, a $1 million policy.Baseman
made an offer to settle for $35,000.Fairman says, “Don’t give her a dime!”But the insurance company says, “Who do we make the check out to?”Insurance companies bear a lot of litigation
costs and therefore want to settle even frivolous claims.

Contingency
fees

The
lawyer agrees to provide legal services with fees to be paid out of a percentage
of the proceeds of the litigation.This
is the chief way that plaintiffs are able to finance meritorious litigation.That’s because the costs per hour for attorney’s
fees are simply too great for most individuals to bear except in certain
contexts.

Yeazell
describes contingency fees as being like insurance policies for potential plaintiffs.A system with a combination of contingency
fees and insurance basically provides a way that most people can get
representation on both sides in most litigation.

Legal
aid and pro bono

There
are agencies at all levels of government that provide legal assistance to
indigent plaintiffs.Pro bono work is
free work that regular old lawyers would do for indigent plaintiffs.The ABA suggests you do 50 hours of pro bono work a year.

The
bottom line is that there are many ways to finance.These are all parts of the American Rule.